My mother received the offer to cash-out her pension. She asked me for advice. She is 79 years old. We are trying to figure out which is the better deal.

She currently receives $450 per month. This would terminate on her death. The lump-sum would be $45000.

I figured in the simplest case, no-interest. That the breakeven point is 8 years (e.g. the 45000 divided by $450).

But I am not sure about the tax effects.

She currently has $15000 in SSA benefits. $3000 in part-time wages. $5400 in pension payments. $2000 in IRA required distributions. For a total taxable income of about $10500, with none of her SSA being taxable.

I reran her taxes (2014) (ignoring state taxes) as if she took the pension lump (and removed the pension monthly payments) just to see the tax effects. Her total taxes due went from about $0 to $7500. And $12700 of her SSA became taxable. (her tax rate went from 0% to 13.2%).

So it looks like the after-tax lump sum goes from $45000 to $37500 (after subtracting $7500).

Did I compute this correctly?

Are there any other strategies to avoid giving the taxman any more than necessary? She has a traditional IRA, could she roll then money into there and then take out payments to keep her SSA from becoming taxable?

Another question not pertaining to the lumpsum question, since she is effectively tax at $0 currently, should she be taking money out of her traditional IRA up to some AGI threshold, because she is essentially getting it tax free.